Family Offices: All You Need to Know

Asia is one of the biggest business hubs in the world. Its landscape is constantly changing and more people are getting rich. The demand for wealth management services are higher than ever due to the rapid growth of high net worth individuals (HNWI).

Countries like Singapore have capitalized on the incursion by offering services through their  Singapore family office. Although traditional wealth management is still viable, ultra HNWI and their families look to more comprehensive methods with family offices.  

A family office offers a variety of services compared to conventional wealth management. With that, let's take a look at everything you need to know about family offices and how they work.

History of Family Offices

The origins of family offices can be traced back to ancient Rome. Major domos or stewards were hired to manage the assets of wealthy families. In the 18th century, superintendents were tasked with managing family wealth for generations to come. 

The first modern family office was pioneered in the early 19th century by J.P Morgan. He founded the House of Morgan which was built to manage his family wealth. The Rockefeller family followed suit, establishing their foundation in the late 19th century. 

The 20th century saw an influx in family offices. It was eventually established as a feasible institution where business families can manage their assets over the long term. 

What is a Family Office?

A family office is a private advisory firm that provides a wide range of wealth management services.This includes fund management, financial planning, wealth transfer planning and tax services to name a few. 

It also handles non-financial affairs such as schooling, travel arrangements and household matters. It's basically an entity that serves wealthy families and the complexity of their lives. 

Family offices are structured uniquely and their service is dependent on the requirements of the HNWI and their families. The entity is usually made up of advisory teams that deal with financial, tax, concierge and management related matters. 

Types of Family Office 

• SFO, Single Family Office

The SFO is established to manage the wealth of a single family. It consists of hand picked experts who are tasked with managing the personal affairs of wealthy families. They are made up of financial advisors, asset managers, estate agents and more.  

A SFO is more personal in a sense that employees are chosen by the family. It also avoids conflict of interest with financial services and products of working for an institution.

In Singapore, the Monetary Authority of Singapore (MAS) has exempted the need for fund licensing for SFO based entities. 

• MFO, Multi Family Office

The MFO are private institutions made up of qualified professionals. They function similarly to SFO’s but a MFO has a wider range of service. 

These firms cater to a number of families and are usually cheaper than SFO’s. Although more affordable, families have less control over the providers and how they manage their assets. 

The Role of a Family Office

All family offices are unique and their services are based on the requirements of the clients. Nevertheless, there are certain elements that most entities have in common: 

• Wealth Management

Managing a family's wealth is a common trait among most family offices. They are required to manage investment portfolios and structure frameworks for long or short term planning. This includes asset allocation, private equity deals and property management.

• Lifestyle Management

This service entails the management of a family's personal affairs. It includes travel planning, school planning, providing security and conducting background checks on employees. They basically serve as a concierge for families. 

• Tax Planning

A good tax accounting system can help families better manage their finances. This includes achieving lower tax requirements and better tax returns. They also offer advice for tax planning.

• Legacy Planning

Entities usually structure a financial plan to prepare the wealth transfer from generation to generation. This requires well coordinated planning to ensure a smooth transition onto the next generation.

What to Consider Before Setting Up a Family Office? 

There are various factors to setting up a family office. Here are some tips to consider before you plan to start one: 

• Capital and Cost

Generally, a family should have about $100 million worth of investable assets to start a family office. An average entity could cost between $2-6million depending on the scale of operation. 

Other incurring costs such as annual fees would range from $1-3 million. Cost consideration is of utmost importance as it could either make or break your plans.

• Livelihood

The main goal of establishing an entity is to manage the complexity of your business. It won't be necessary to start one if you have minimal assets to manage. Personal advisors and your management team can easily help drive your business.

Understanding the scale of your assets will determine the need to set up an entity and the services you require. 

• Services 

Once you have a framework of the assets you possess, you can now choose the services you need. A family office gives you the flexibility to choose services that could be detrimental to your cause. 

At the end of the day, it also comes down to the people who will govern your assets. Be sure to hire experienced professionals who can be trusted with your wealth.

• Family Priorities

The family office is usually built around an entire family and their wealth. It is driven by the idea of maintaining and growing wealth for generations to come. If you’re an individual with no heirs, then you might want to reconsider other options.

Your family should also acknowledge the time and energy it will take to manage an entity. The process of managing a  family office can be energy consuming and it’ll be good to delegate certain tasks among the family. 

Conclusion 

In conclusion, family offices are private firms that are set up by ultra HNWI and their families. They are established with the goal of managing family assets over the long term. The history of these entities dates back to ancient Rome and the role has evolved over time. 

There are different types of family office, mainly 2 and their roles differ depending on what is required by the client. All in all, families should consider factors such as personal wealth and priorities before setting up an entity.

30 Apr 2023
SG Expats